Faced with California's worsening drought and shrinking local water supplies, Santa Barbara is looking to the sea for salvation. The coastal city is prepared to spend upward of $40 million to reactivate a mothballed seawater desalination plant that opened in 1992 and shut down just three months later.

"We're looking at desalination as a very last resort in the next year," said Santa Barbara Mayor Helene Schneider. "We know it's a very big decision to take—and yet at the same time we've done everything we could with our other water supply options."

Saltwater desalination is an energy-intensive process, and the Santa Barbara mayor said it could raise the costs of the city's water to about five times as much as it normally pays for reservoir water. "It's definitely a costly option," she said. "No water is a worse option."

"It's definitely a costly option. No water is a worse option."

The largest seawater desalination plant is the United States is currently being built in Carlsbad, a town in north San Diego County. It will supply only about 7 percent of the county's water needs. The facility cost nearly $1 billion and is on track to open in the fall.

Cambria, a popular tourist town located just south of the Hearst Castle, opened a brackish water desalination plant late last year. On the Monterey Peninsula, a unit of American Water Works is in the permit stages on a brackish water desalination plant in the town of Marina and hopes to begin construction in late 2016.

More than a dozen other California communities are looking to desalination as the answer to supplying their water needs, whether tapping water from the vast Pacific Ocean or using brackish groundwater or salty surface water.

The trouble with desal

But desalination has its problems—especially the expense. Australia'sbig push into desalination during a drought that ran between 1997 and 2009 may offer a cautionary tale for California.

The desalination plants built by Australia during that period "are sitting in mothballs or whatever is the equivalent," said Ellen Hanak, senior fellow of the San Francisco-based Public Policy Institute of California and director of the institute's Water Policy Center. "They are not being run in Brisbane, Sydney or Melbourne because of the operating costs—even for those plants built already."

That said, Hanak said she believes desalination isn't a bad option under certain circumstances. For example, she said the Carlsbad facility provides "a small drought resiliency" for a portion of the area's urban water supply and is blended into other costs that "can be affordable for them."

Montecito, a wealthy enclave nearby with acute water shortages of its own, was a regional partner in the Santa Barbara desalination plant in the 1990s but exited before the latest drought started. Now officials in that seaside town regret the earlier decision and are studying a proposal to build their own desalination plant at a cost of $70 million to $80 million, or approximately $8,000 per resident.

Santa Barbara's main source of water is Lake Cachuma in the Santa Ynez Valley, but the reservoir is at levels equal to 28 percent of normal right now. That's particularly alarming given that most of the remaining water is already set aside for fish protection or downstream users.

Until now, Santa Barbara has gotten some water from a California water management program, the State Water Project. But those supplies come from Northern California and are starting to go dry. The city wants to restart two pumps located about a half mile off the Santa Barbara coast to bring seawater on shore where it will be treated and put through a set of filters to pull out impurities and remove salts.

Although the Santa Barbara desalination plant was decommissioned in the mid-1990s, the city has spent about $100,000 a year on average to keep the required permits active and to maintain the facility for a faster start-up. The current plan is to restart the facility by producing 30 percent of the local water needs but the plant can ramp up capacity to almost cover the entire water requirements of the city, according to Joshua Haggmark, the city's water resources manager.

"The facility will take somewhere between 12 and 15 months to reactivate, so that's why we're contemplating the decision right now," said Haggmark. "Our big water shortage for us is going to come in 2017 if things don't improve. This drought is pretty significant and has certainly exceeded our worst drought of record."

Jeff Daniels, CNBC

Jeff Daniels is a coordinating producer for CNBC, based at the network's Los Angeles Bureau. He joined the network in 1999.

Prior to joining CNBC, Daniels was entertainment editor of financial wire service Bridge News and business editor of The Hollywood Reporter. He was a news writer for Financial News Network, a predecessor to CNBC. Earlier in his career, he was a reporter and market columnist for Investor's Daily (since renamed Investor's Business Daily).

Daniels holds a bachelor's degree in journalism from California State University-Northridge. He graduated from the University of La Verne in La Verne, California, with an MBA in finance.